Tell Me, How Many Bitcoins Are in the Room With You Right Now?

On the mysterious world of cryptocurrency, trader Sam Bankman-Fried, and a related, alarming executive edict from Trump about a world he doesn't understand

I don’t know about you, but the mention of “crypto” immediately makes my bullshit antennae go up. Anytime someone starts explaining to me why cryptocurrency is a thing I should be investing in, or why “the blockchain” is better than actual banks, I feel like I’m getting a lobotomy and am going to wake up with a basement full of Amway products or a timeshare in the Caribbean that I never use. I used to feel bad about having this reaction—like I wasn’t smart enough to “get it” or just missing something obvious.

So it was a huge relief to learn that Michael Lewis, the author who has written bestsellers explaining how numbers work from baseball to Wall Street, doesn’t totally get crypto either. In Going Infinite, his chronicle of the improbable rise and rapid fall of cryptocurrency trader Sam Bankman-Fried, Lewis spends one short paragraph explaining Bitcoin, observing that “Bitcoin often gets explained but somehow never stays explained. You nod along and think you are getting it but then wake up the next morning needing to hear the explanation all over again.” Yes, exactly. Which is why President Trump’s latest Executive Order unleashing crypto in the U.S. economy and potentially even creating a “national digital asset stockpile” seems totally suss. Look: If I don’t get crypto, and Michael Lewis doesn’t get crypto, I think we can be pretty sure that Trump’s team doesn’t really get it either and this whole EO is yet another cluster**** waiting to happen.

Bankman-Fried’s story provides a cautionary tale on how little even the people creating crypto understand it, yet how easy it is to hoodwink the public into believing they do. The quick and dirty on Bankman-Fried is that he created his own cryptocurrency token, called “FTT,” which was traded, conveniently, on his own cryptocurrency exchange, FTX. FTX’s edge on the crypto market was due to its trading software, which supposedly protected investors from having their funds cover other traders’ losses (a problem that plagued most other crypto exchanges, given the volatile nature of this market that nobody understands). On this promise, individuals and companies invested billions of dollars in FTX. It turns out that FTX was loaning the investors’ money to its sister trading firm, Alameda Research, also owned by Bankman-Fried and run by a woman he happened to be sleeping with. As collateral (for the loans, not for the sex), Alameda Research offered FTTs, the very “currency” that investors bought believing that they could liquidate them at any time. Then Alameda Research traded using the investors’ money, often incurring losses that would in turn need to be covered by getting more investors for FTTs in FTX. Still with me? Basically, it was one big circle-jerk crypto Ponzi scheme.

What are the lessons we can take from FTX and apply to Trump’s brilliant crypto plan? Well, first, that anyone can create cryptocurrency out of thin air, as Bankman-Fried did with FTTs. The problem is that there is no inherent value to most of these so-called currencies beyond their hype. We’ve seen this play out recently with the so-called “Hawk-Tuah” girl (you’ll need to look up the nickname yourself), who created her own “memecoin” that capitalized on her internet fame. The coin hit a $490 million market cap immediately when it launched, only to become almost worthless a few hours later. (Fans filed SEC complaints and a lawsuit against the group that launched the coin.) Just last week, Trump released his own memecoin, increasing his net worth within a few hours by 800%, according to CNN. The value plunged by 40% a day later. This uncertainty and volatility seems like an important consideration if cryptocurrencies are going to somehow become a part of our “national digital asset stockpile,” especially since the EO doesn’t specify which currencies the stockpile would actually consist of (one has to wonder if Trump’s memecoin and Elon Musk’s Dogecoin might mysteriously form part of it). But even if a digital stockpile consists of longer-lasting and more ubiquitous cryptocurrency, like Bitcoin, speculative memecoins can erode confidence in crypto generally and potentially erode their value. The one kind of cryptocurrency that actually makes conceptual sense to me is a Central Bank Digital Currency, or CBDC, which is basically a digital form of a country’s currency, backed by the government. This was something that President Biden was exploring—so of course, Trump’s EO bans CBDCs altogether.

Second, rules are great, but only if they are enforced. Bankman-Fried, for example, moved FTX to the Bahamas in 2021, one of the few places in the world that had created a regulatory scheme for crypto exchanges. According to Bankman-Fried, he wanted to be highly regulated and even subject to licensing because (he claimed) that would generate investor trust and help legitimize the crypto industry. Well, that didn’t turn out so well. As we’ve learned from “normal” financial scandals like WorldCom and Enron, only disclosure and oversight can ensure that companies are in compliance and aren’t cooking the books, like FTX was (FTX’s replacement CEO in its bankruptcy proceedings testified to Congress that the company had “no recordkeeping whatsoever”). Trump’s EO creates a “Working Group” staffed with renowned cryptocurrency experts like [checks notes]…Attorney General Pam Bondi to develop regulatory framework. Tellingly, unlike Biden’s EO on crypto, Trump’s doesn’t contain any emphasis on independent enforcement of these regulations or risk mitigation.

Finally, the banking system can be significantly impacted if the crypto market goes south. Trump’s EO mandates that the crypto market have “fair and open access” to banking services, potentially increasing systemic risks to these institutions. In the U.S., very few banks service cryptocurrency exchanges, in light of the risk. A few, like Silvergate Bank, serviced FTX, no doubt believing that Bankman-Fried was legit, given his net worth and the hype around him. Silvergate declared bankruptcy following the collapse of FTX, highlighting the wisdom of the banking industry’s general skepticism in becoming too intertwined with crypto.

What could go wrong?

The irony is that the initial premise of cryptocurrency was that it eliminated the need for banks, regulations, and government—everything would operate on trust and “transparency on the blockchain” (whatever that means). Trump’s EO puts crypto squarely in the crosshairs of banks, regulation, and the government, which sort of brings the whole scamminess of the crypto concept full circle. In fact, the EO itself may be the biggest scam of all; Matt Tait, a cybersecurity expert, observed on Bluesky that Trump’s “digital stockpile” plan is “[a] grand heist of your money that you’ll eventually have to pay for. Bitcoin as an investment works by you being able to buy magic coins, but sell those magic coins to a ‘greater fool’ later. This isn’t a stockpile. It’s making the USG the greater fool of last resort.”

I have a feeling that somehow, Trump will still end up laughing all the way to the bank.

Asha Rangappa (Bluesky – LinkedIn) is an Assistant Dean and Senior Lecturer at Yale’s Jackson School of Global Affairs and a former Associate Dean at Yale Law School in New Haven, Connecticut. Asha previously served as a Special Agent in the New York office of the FBI specializing in counterintelligence investigations, and she is the cohost of the legal podcast, It’s Complicated, with fellow Contrarian Renato Mariotti.